AI boom to supercharge European banks’ rally
LONDON, Dec 15 (Reuters) – After a stellar 2025, investors expect shares in European banks to keep heading higher in 2026, supported by strong earnings and, crucially, cost savings stemming from artificial intelligence.
As fears of a recession and interest rate cuts from the European Central Bank have subsided, investors have turned even more positive towards European banks, revising up their expectations for the sector, despite a complicated backdrop.
Meanwhile, AI has emerged as a new force drawing investors to European lenders’ shares, partly because a dearth of technology companies in the region has forced many to hunt for AI beneficiaries in old-economy markets.
Banks have started to use AI to improve operational efficiency and fraud detection, as well as to reduce staff costs.
“European banks could be a real beneficiary of AI,” said Helen Jewell, chief investment officer for fundamental equities at BlackRock, the world’s largest asset manager, with about $12 trillion under management.
“A lot of the AI story has been focused on the revenue winners, but we also know that when it comes to AI, there is a beneficiary from the cost winners,” she said at a press event.
UBS said in a note to investors they see AI as a key source of potential upside to banks’ near-term valuations and longer- term earnings.
But that comes with risks.
Warnings over AI-related exuberance and the risks of a dot-com style bust have come from various sides, including the International Monetary Fund and the Bank of England.
And risks aren’t only AI-related.
The ECB said euro zone banks face ‘unprecedentedly high’ risk of shocks including geopolitical tensions, shifting trade policies, climate-related crises and even a dollar squeeze for banks exposed to the volatile U.S. currency.
Yet investors have snapped up bank stocks in earnest. Societe Generale shares have rallied 140% this year, Commerzbank 125% and those in Barclays rose almost 70%. An index of European bank stocks is up more than 60%, on top of the 25% gain in 2024 and more than four times better than the pan European index.
Investors also view them as relatively cheap, particularly when compared with U.S. banking shares. European bank stocks currently trade around 1.17 times their price-to-book value, some 40% below their 2007 peak and below the 1.7 times of their U.S. rivals, according to LSEG data.
EARNINGS EXPECTATIONS JUMP
In terms of costs, Goldman Sachs said in a note that costs would grow at a compound annual rate of only 1% between 2025 and 2027. The U.S. bank also sees efficiency continuing well into 2026, with banks’ cost/income ratios improving by 130 basis points year on year, meaning companies are expected to spend less to generate income.